The docs of locate-dominating-file say this:

  (locate-dominating-file FILE NAME)

  Look up the directory hierarchy from FILE for a directory containing NAME.
  Stop at the first parent directory containing a file NAME,
  and return the directory.  Return nil if not found.
  Instead of a string, NAME can also be a predicate taking one argument
  (a directory) and returning a non-nil value if that directory is the one for
  which we’re looking.

This part is wrong, because locate-dominating-file also accepts directories:

  Look up the directory hierarchy from FILE

This part is wrong, because the predicate is called with the initial file name, too:

  NAME can also be a predicate taking one argument (a directory)

Indeed, the following form:

  (locate-dominating-file "/usr/local/bin/emacs" (lambda (x) (ignore (message "%s" x))))

prints this:

  /usr/local/bin/emacs
  /usr/local/bin/
  /usr/local/
  /usr/
  /

(not the file name passed into the first call.

I think the fix is to update the docs in both places, as there might be callers relying on the existing behavior.  It's important to also document that passing a directory name is OK, though, because that's the only way to use locate-dominating-file reliably with a directory-only predicate — otherwise, the predicate needs to handle both files and folders.

Cheers,
Clément.